Debt to Income Ratios and IBR

[Dirt]

I will be starting residency next year and will be looking to purchase a house. I have been thoroughly reviewing this forum and such to get up to speed on the current state of physician loans. One thing I have not come across is how loans being repaid under IBR will be calculated in one's debt to income ratio.

Just throwing some numbers around currently using the studentaid.gov IBR calculator my monthly payment for the first year of residency would be $165, with it jumping to $465 the following year (Since IBR is based on AGI, the first year only my wife's AGI would be used, the following year my resident salary will now be included)

My total loans are roughly $265K.

Also, while I have the floor, if anyone has any suggestions for physician mortgage lenders that work in Connecticut or Mass send me a PM please.

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[TexasPhysician]

You will almost certainly have to put your student loans into forbearance. Then the amount you qualify for will be based on your + wife's income.

Any lender will work. I would shop around at a few of them. I personally used WellsFargo, but anybody would work.

Since I may not stay in the area after my 5 year residency, I got a 5/1 hybrid loan. It is fixed rate for 5 years at 2.85%. Then it adjusts yearly with a max of 1 added point per year to a total max of 8.85%. Depending on your credit score, your rate may be better or worse.

 

[Dirt]

You will almost certainly have to put your student loans into forbearance. Then the amount you qualify for will be based on your + wife's income.

Any lender will work. I would shop around at a few of them. I personally used WellsFargo, but anybody would work.

Since I may not stay in the area after my 5 year residency, I got a 5/1 hybrid loan. It is fixed rate for 5 years at 2.85%. Then it adjusts yearly with a max of 1 added point per year to a total max of 8.85%. Depending on your credit score, your rate may be better or worse.

I was worried about that. I would like to avoid forbearance if possible since I have heard that will allow for capitalization of one's interest.

In crunching the numbers myself, my wife and I will still have an acceptable debt to income ratio while repaying under IBR. I asked this question because I doubt many mortgage lenders are familiar with IBR and was wondering what kind of documentation I would need to provide for them to accept my monthly payments in my ratio.

 

[TexasPhysician]

I'm not certain with your individual situation.

A friend of mine recently purchased a home in residency. Home cost was $200K. He already had $200K in med school debt. Combined yearly income for his wife and him is over $110K. I would think that for a physician in training that those numbers aren't too bad. It's not like he won't be able to pay that off. He is able to make payments on both the house and debt.

His financing was denied everywhere without forbearance.

Scenario #2: I managed to graduate with only $16K in medical school debt. My house was about $150K. Again forbearance was required. Seemed silly to me. I ended up paying off my debt before buying.

I'm not saying it isn't possible somewhere (I didn't search very hard because I was able to pay off my debts quickly), but i haven't seen it done in this current economy. Banks are being more stringent.

 

[EndersDrift]

Just out of curiousity but how in the world did you manage $265,000 in student loans? 10 year plan at Brandeis? Public Ivy for a state that isn't yours? No scholarships at all?

 

[Igor4sugry]

I would suggest the following.

Keep doing IBR, mainly because the program pays for your interest on Subsidized Stafford loans for three years. Forbearance will not do that, and your interest on $265k will grow even faster than it already is.

Instead, don't buy a house, and continue to rent. Save your money for a 20% down payment for a house wherever you will move to after residency. One thing I realized from talking to docs is that buying in residency is a poor choice, mainly because people move away and you will have tough time selling and will likely sell at a loss. Also buying a house even at your first post-residency job is not ideal because docs switch jobs initially fairly quickly.

If you still want a house, apply for the loan and see what the lender says.

 

[Dirt]

Just out of curiousity but how in the world did you manage $265,000 in student loans? 10 year plan at Brandeis? Public Ivy for a state that isn't yours? No scholarships at all?

Seriously? $265K is not crazy by any means.

4 years at $48K tuition plus another $15K for room and board = $252K plus the interest that has been cooking on all un-sub and grad plus loans.

I probably got about $8K in scholarships total over the course of 4 years.

I was not lucky enough to be born with a trust fund...

 

[kazuma]

Seriously? $265K is not crazy by any means.

4 years at $48K tuition plus another $15K for room and board = $252K plus the interest that has been cooking on all un-sub and grad plus loans.

I probably got about $8K in scholarships total over the course of 4 years.

I was not lucky enough to be born with a trust fund...

No kidding, I'm in the same boat and I have a family to support as well. I ended up with about ~250K principle which is about 310K with interest.

I'd avoid buying at all costs due to the reasons listed above. I have seen dozens of students/residents that have bought houses and I have yet to see one honestly admit that it was a good idea. All of them have sold at a loss or are scrambling to find renters because they can't sell their house.

I'm moving next summer to start my CA1 year in an area that was hit hard by the housing bubble. There are tons of nice, recently built homes on the market, but I can't imagine taking on even more debt especially since I'll only be there for 3 years. I really like the area and could totally see myself settling there, but I'm not taking any chances. I'd be willing to bet that we haven't even come close to seeing the bottom of the housing market. IMO, there will still be great deals to be had even 5+ years from now, whether or not we'll be able to get loans at reasonable interest rates is another story.